Question

You have just received notification that you have won the $3 million first prize in the Centennial Lottery. However, the prize will be awarded on your 100th birthday (assuming you’re around to collect), 66 years from now.

What is the present value of your windfall if the appropriate discount rate is 10 percent?

PV = $__________________________

Answer 1

The present value of your windfall if the appropriate discount rate is 10 percent is $5,562

Step-by-step explanation:

Amount of Prize = $3,000,000

number of year = 66 years

Discount Rate = 10%

use following formula to calculate the Present value of Lottery prize

Present Value = Future value / ( 1 + discount rate )^number of years

PV = FV / ( 1 + r )^n

PV = $3,000,000 / ( 1 + 0.10 )^66

PV = $3,000,000 x ( 1 + 0.10 )^-66

PV = $3,000,000 x ( 1.10 )^-66

PV = $5,561.65

PV = $5,562